What’s a Noncompete?
The popular online review site Yelp (YELP) recently released a statement supporting the Federal Trade Commission’s proposal to ban noncompete agreements. Noncompete clauses prevent employees from working with a competitor for at least a year after leaving a company.
These contracts are intended to protect businesses from employees stealing company secrets and selling them to a competing company. In other words, an engineer at a popular social media company can’t waltz over to a new company, proprietary algorithm in tow.
However, Yelp argues these contacts are actually bad for business, since they stifle competition.
Yelp has firsthand experience getting stung by a noncompete agreement.
The company says it tried to hire a former Groupon (GRPN) executive, Sung Shin. Yelp wanted to bring Shin on as a product management VP. However, Groupon filed a lawsuit to prevent him from taking the role.
This situation denied Yelp a top candidate for its open role and kept Shin from taking advantage of a major job opportunity. This is just one example of how these clauses can diminish competition for workers. In its comments to the FTC, Yelp highlighted how noncompetes are banned in California, a state well-known for encouraging industry competition and innovation.
Good or Bad?
On the flipside, supporters of noncompete agreements argue that these clauses are actually good for business. They say that noncompete clauses protect trade secrets and help keep turnover low.
Looking forward, the FTC will review comments from all businesses and make a final decision. It is expected to be announced before the end of the year. That said, the ruling could be slowed by red tape. The Chamber of Commerce is reportedly already planning to file a lawsuit against any bans.
Regardless of whether you are CEO or the newest hourly employee at a company, this ruling will impact workers’ ability to seize opportunities for years to come.
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